The topic Price increase currently employs all sectors and industries. Stable prices are the basis for a stable business relationship. Fixed purchase prices during the contract term are the basis for calculating margins and sales prices. Negotiations of the purchase price or sales prices at the next trading level are the most important topic in the respective annual discussions. Entrepreneurs who act as buyers of goods and services and sellers of products on the market rely on them. The prices for raw materials, food and paper have risen sharply during the corona pandemic, as have transport costs and electricity prices. Strong demand and interruptions in supply chains are causing delivery bottlenecks in almost all industries. Suppliers are forced to pass on price increases to their customers and set quotas - both of which often violate clear contractual regulations. Almost every company is affected by delivery bottlenecks and price increases in both purchasing and sales. Purchasing tries to fend off price increases from the supplier. Sales tries to minimize the damage and pass on the price increase to customers with a reasonable amount of notice. Everyone rejects price increases, insists on the contractual agreements and claims damages. How should entrepreneurs deal with this situation when the purchase price increases but the selling price cannot be adjusted?
As a specialist lawyer for commercial and corporate law and a specialist lawyer for international business law, I have been advising a large number of my clients on such issues for a long time. It is important to include the situation of the buyer and the seller in the legal review. Accordingly, the contractual regulations and statutory claims for damages must be checked. Where the contractual regulations are – as is often the case – incomplete, statutory law, in particular the German Civil Code (BGB), is decisive.
Contractual clauses on price adjustment
Clauses with which companies want to address price adjustments can be found primarily in general terms and conditions. Here too, a distinction must be made between purchasing and selling. In General Purchasing Conditions, a claim to price increases, and even generally to price adjustments, is generally excluded. The goal of purchasing is to be able to calculate stable purchasing prices. This is the only way to achieve internally specified trading margins. Clauses intended to prevent an increase in purchase prices are effective in general terms and conditions.
Price adjustment in terms and conditions
In general terms and conditions of sale, on the other hand, the possibility is often provided for the seller to subsequently increase prices without being entitled to compensation or other compensation. In this way, the seller wants to counteract the risk in his contract that his own costs will increase. Subsequent price adjustments for consumers are only permitted within narrow limits. In one group of cases, the requirement is that there are four months between conclusion of the contract and delivery. In another group of cases, these are long-term contracts, such as the supply of electricity.
General terms and conditions clauses that are intended to enable subsequent increases in the agreed price in the b2b sector, i.e. commercial transactions, are also only permitted under strict conditions. The Federal Court of Justice (BGH) has ruled several times that the clause in the general terms and conditions of sale must not only allow for price increases, but also price reductions. The clause must therefore allow for a subsequent adjustment of the price in both directions. Another requirement is the transparency of the price change. According to the BGH, the regulation must therefore clearly explain the reasons and to what extent a price adjustment is made. The adjustment of the old prices must be based on specific cost increases, but can be based on changes in an industry index. It must also be determined how high the price adjustment will be, for example in percentages, and when it should take effect. Adjustments with retroactive effects are much more critical than a price adjustment in the future. In addition, a price increase must not lead to the seller increasing his profit. Any price adjustment must therefore generally take into account the interests of the other contracting party. Price adjustment clauses often also stipulate that the buyer can declare the termination of the contract or exercise a right of withdrawal if he does not want to accept the upward price adjustment.
Contractual regulation for price adjustments
A permissible price increase is therefore linked to many conditions in general terms and conditions, which in business transactions often fall short of the requirements of case law. However, if the provider and customer have sat down together, negotiated regulations for changes to the customer's purchase prices and agreed on an individual rule, the above requirements do not apply. These only apply in the case of pre-formulated terms and conditions.
In addition, commercial legal protection under the UWG also protects against price increases. Demanding an increase in the subscription price may in itself be unfair. This is the case, for example, if the manufacturer or supplier coerces his customer, for example if he threatens to stop delivery. In this case, the buyer can demand injunction and compensation under UWG because the seller is violating his obligation to deliver according to the reference price. He then also owes compensation in the form of lost profits, for example because the buyer has to accept an expensive offer from a third-party supplier in order not to expose himself to his own buyer's claim for damages.
Price adjustment according to the BGB
Without contractual regulations, it is difficult in practice to unilaterally increase the customer's purchase prices. If the supplier and customer reach a contractual agreement, this is the basis for a subsequent price increase. The BGB, on the other hand, does not allow unilateral price increases. The negotiation of purchase prices and sales prices can only take place by contract because the price is always set by the parties.
Disruption of the business basis
One reason for an adjustment of purchasing prices is currently seen in the Corona pandemic, the effects and duration of which could not have been predicted by anyone. A disruption of the basis of the transaction is often claimed as a substitute for a contractual rule. However, in many cases this will be difficult to achieve success in court. Disruptions to the basis of the transaction only come into consideration if the disruption does not fall within the commercial risk sphere of one of the parties. However, the problem of fluctuating purchase prices for raw materials is a typical problem for suppliers. He cannot pass this risk on to his customers. The fact that he is the injured party due to the current shortage of raw materials and parts is fundamentally acceptable. Rising inflation, for example, is also part of the commercial risk and therefore falls within the sphere of the parties. This cannot be seen as a disruption to the basis of the transaction.
Economic impossibility
In the event of delivery bottlenecks or even failure of deliveries, many suppliers also argue that it is economically impossible. Impossibility only exists if the production and delivery of the goods cannot be accomplished due to a lack of self-supply. In these cases, however, there is generally no right to adjust the price. Even if the prices of raw materials and parts have risen so much that a company can only produce and deliver at a loss, it is actually impossible to operate economically. However, this is usually not enough to make it economically impossible in the legal sense. In these cases, the debtor can still pay, even if it is no longer worthwhile for him. The jurisprudence is therefore very reluctant to speak of economic impossibility even in the case of an exorbitant price increase.
It is therefore difficult to enforce higher prices after the contract has been concluded. As part of an effective purchase contract, the prices are fixed. An exception exists for so-called permanent contracts, such as authorized dealer contracts. A price list is often referred to there. The issue that often arises in court is whether the price list is meant at the start of the contract or whether the entrepreneur can replace it regularly and thus adjust the prices. The courts tend to view a price adjustment as effective by referring to the currently valid price list. The authorized dealer cannot therefore claim any damages if he cannot pass on the prices to his customers. Retailers are generally not entitled to retain the old price list, even if their margin is reduced.
Exception of force majeure
In the event of force majeure, also known as “force majeure” (read more about “force majeure and delivery claim"), the legal situation, particularly with regard to compensation, may be different in individual cases. Force majeure means all events that are beyond the control of the contracting parties. As a specialist lawyer for international business law, the examination and drafting of contractual provisions on force majeure is an important part of the consultation, both in the drafting of the contract, the contract negotiations and the examination of whether a claim for damages exists. The BGB does not contain any direct provisions on force majeure, so contractual agreements are recommended. The regulations of the German Civil Code (BGB) contain provisions on temporary impossibility, but these do not apply to questions of price regulation. But the BGB is often not applicable. However, force majeure is not automatically every event that makes performance difficult. Increases in the prices of raw materials or electricity are generally not included. Delivery bottlenecks should be mentioned in the contract as a special case of force majeure. In particular, it is advisable to include a self-delivery reservation.
Price increase – compensation for unilateral action
If the service is not provided or the entrepreneur refuses to provide the service because it is not profitable due to the price increase or because the buyer does not accept an increased purchase price, the entrepreneur is liable for damages. For liability to compensate for damages, it is essential to check the applicable law and place of jurisdiction, as contractual claims for damages are not generally agreed. If German law is applicable, the claim for compensation for the damage is based on the German Civil Code (BGB). Damage for which compensation must be paid includes all economic losses suffered by the customer. The claim for damages is intended to compensate for all losses suffered by the customer resulting from the breach of contractual obligations or other rights. He is particularly entitled to compensation for lost profits by way of compensation. It can also be a replacement for the costs of a cover purchase, for example if the buyer obtains the service somewhere else and has to pay the increased purchase price that he refused to give to the entrepreneur. All financial loss is covered by the claim for damages. However, contractual liability limitations must also be observed in this respect.
The tortfeasor who is obliged to pay compensation can claim that everything that the injured party has saved or could have saved must be taken into account against his liability for damages. However, the perpetrator must prove this. In particular, as an example, it can be difficult to argue that a cover purchase was purchased at too high a price. The tortfeasor himself insisted on an increase in prices, for which he now has to pay in the form of compensation. It should also be taken into account that the price risk cannot be covered by insurance. A price increase is not a financial loss under insurance law. An insurance company therefore does not have to pay any damages or compensation.
Price increase – practical tips for behavior
In practice, an entrepreneur who is faced with a price increase request should consider the following things:
– First, the supplier’s contracts and general sales conditions should be checked to see whether a right to a subsequent price increase has been effectively agreed. For each price increase, a specific justification should be requested in a detailed letter, if necessary setting a deadline.
– A price increase should generally be rejected. Where this is not commercially possible because the company is dependent on delivery, the entrepreneur should reserve all rights, in particular his claim for damages.
– Payment should also be made subject to repayment
If, on the other hand, a company finds itself in the situation that it has to increase its prices itself, especially in order to pass on its own increased purchase prices, the following is important:
– In this situation, too, the entrepreneur should check whether a right to increase prices was agreed upon when the contract was concluded.
– The announcement of a price increase and the reasons for it in a detailed letter make it easier to enter into negotiations with the buyer, who may have no alternative for procurement and is therefore dependent on delivery.
– A subsequent price increase will always be effective for a court if the buyer has agreed to the price increase. The entrepreneur should therefore ensure that the customer expressly agrees to the increase in purchase prices, ideally in writing.
– Liability for damages should not be accepted.
Both purchasing and sales conditions should contain regulations regarding price increases and their defense, deadlines, compensation and the respective requirements.
